When people think of the Caribbean they often think of beautiful beaches, warm people, and fruity drinks. Daiquiris, pina coladas, and mai tais are at the top of the list. But it’s actually bitters that have become a key export for Trinidad and Tobago. Angostura Bitters, probably the most recognizable brand of bitters in the world, is based there. Today it’s a prominent part of the nation’s economy. Its history indicates that it was founded in a very Effectual way.

Dr. Johann Siegert was a German soldier and surgeon with a taste for adventure. After medical school, he served as an army surgeon during the fight against Napoleon. When those battles were over, he set sail for South America to participate in the wars for liberation there. He established himself in Venezuela in the early 1800s.

While in Venezuela, in the city of Angostura, Dr. Siegert had troops under his care who suffered from stomach ailments. Seeking a tonic to ease their discomfort, he experimented with locally available ingredients. Local AmerIndians supplemented his knowledge and ingredients with some of their practices. He spent years of trial and error experimenting with versions. Eventually, he came up with a concoction that seemed to work. It eased stomach pains and was pleasant for the troops to ingest.

Word of Dr. Siegert’s tonic spread. In 1824 he began to sell it outside of his command. Six years later, he established a distillery to increase production and maintain consistency.

As Dr. Siegert grew older, his sons (Alfredo and Luis) became more actively involved in the venture. Venezuela was politically unstable in the latter half of the 1800s, so they looked to move their operations. Trinidad and Tobago lie just off the coast of Venezuela, and were part of the UK. They chose to relocate there.

As a territory of the UK, Trinidad offered a lot of connections to people from overseas. The brothers began marketing the “Angostura bitters” to royal visitors from Europe. They also kept in contact with their military networks and sold it to troops from the UK. The bitters were particularly tasty when mixed with their Navy gin rations. It tasted good and had a medicinal effect. Liking it, they brought it back to the UK with them. There, the bitters were incorporated into various cocktails and other drinks and spread beyond the original military audience.

Angostura bitters began to develop a broad following for its tastes. At the same time, it gained recognition for its look. The label is big – out of proportion to the size of the bottle. The story is that the two brothers shared responsibilities for production – with one making the bottle and the other making the label. Unfortunately (or so it seemed initially), they didn’t communicate well and when the two parts came together, they didn’t fit. But they had deadlines to meet, so the oversized label was pasted on the diminutive bottle. This could have been a disaster, but the brothers turned it into a positive by using the distinctiveness of this mismatch as a cornerstone of their brand identity.

Looking back at this narrative, we can see several elements of Dr. Saras Sarasvathy’s entrepreneurial theory of Effectuation.

1.Pilot in the Plane Principle: The future is what you create, not what you predict.

The rise of Angostura Bitters could not have been predicted. It was shaped at every step by Dr. Siegert and his sons. Dr. Siegert did not begin testing bitters to create the next great global bitters brand. He started small, used the resources and networks that were accessible to him, and grew from there.

Business planning, market research, and forecasting became important tools for its growth as a company, but only after the brothers had created a market and knew that they had a product and customers.

2.Bird in Hand Principle: Start with who you are, what you know and who you know.

Dr. Siegert had responsibilities as a combat surgeon. He began his venture by looking for solutions to problems that were within his trained profession. He used ingredients from Venezuela because that’s where he was located. And he learned from the native population because he had access to them and their deep knowledge of local herbs and their medicinal properties.

Had Dr. Siegert stayed in Germany and never ventured to South America, Angostura Bitters would likely not have been created. It was not inevitable.

3.Affordable Loss Principle: Only invest what you can afford to lose.

Dr. Siegert made these bitters in quantities needed to satisfy his troops’ medicinal needs at first. As they liked it and requested it outside of illness, he began to make more. When he realized that there was a market for it, he began to sell it. As people bought it, he set up a distillery to increase production.

He did not jump the gun and build before he had a market.

4.Crazy Quilt Principle: Obtain stakeholder commitments to grow.

When the Siegert brothers moved their operations to Trinidad from Venezuela, they were able to leverage a broad network of stakeholders with ties to the UK and Europe. This included both troops who would introduce it to their peers back home as well as the aristocracy, who could introduce it to their social strata.

Also, it is said that the recipe is only known by a handful of people in the company. Even the Trinidadian customs officials traditionally did not inspect the contents of the shipments coming to the company. This required a partnership with government officials. Had the company not been able to gain this stakeholder commitment to secrecy, it might not have been able to protect its recipe and thus maintain its lock on the bitters market.

5.Lemonade Principle: Turn disadvantages into advantages.

The Angostura label creation and bottle design is a prime example of this. They took what could have been a one-time production error and have kept it as a key part of their brand identity for a century.

Angostura Bitters is known the world over. It has a distinct look and a distinct taste that has made it a bar essential. But it’s path to creation was not distinct – it followed the same trajectory exhibited by successful entrepreneurs worldwide – Effectuation.

“Put down that video game and….” Most Moms could find some way to fill in that sentence. “clean your room” “do your homework” “play outside”. Luckily, James Park’s Mom didn’t pull the plug on his Wii playing. Using the accelerometer in the Wii, James was inspired to create FitBit, which was valued at $4.1 billion at its 2015 IPO. Looking at the evolution of FitBit from a startup to an IPO, it’s evident that the founders followed a very Effectual path.

When the Wii came out in 2006, it got FitBit founder and gamer James Park off his couch. Not just to play, but he waited in line at Best Buy to get one of the new sets. He immediately saw the power of using technology to get people to move more. He noticed that his own physique had gotten soft after long hours of working with Silicon Valley startups and coming home to relax with video games. He thought about making the actual technology smaller, making the impact larger, and rather than taking a break from life to game, making life itself the game.

First Effectual Principle: Pilot in the Plane. The future is created, not predicted.

Putting these pieces together, he reached out to a friend and colleague of his to share his idea for wearable technology. This friend was Eric Friedman. Eric has a computer science background and had participated in both successful and failed startup efforts in the past. They had been colleagues at a previous startup venture, so they knew that they could work well together and that they had complementary skill sets.

Second Effectual Principle: Bird in Hand. Start with what you have, what you know, who you know.

James and Eric both had startup experience, Silicon Valley and Ivy League networks, and computer science backgrounds. They had the knowledge to get into a high tech business and access to resources to help them with funding and additional know-how. The pair formed the company in 2007 and set about to make a prototype of their idea. They initially raised $400,000 from their network of “friends, family, and fools”. And they leveraged connections in Asia to find suppliers to help them get a very basic model made. It had a sensor, antenna, and a circuit board jammed into a wooden case that was scotch taped together. It certainly didn’t have the sleek appeal of today’s FitBit model, but it was what they could afford at the time and it got the idea across.

Third Effectual Principle: Affordable Loss. Don’t risk more than you can afford to lose.

By 2008, the new company had managed to get a spot in a TechCrunch Conference to show off their prototype. Beyond revealing what they had made, they were prepared to take pre-orders. Their hope was that 50 of the audience members would be excited enough about the possibility to pre-order the product. At the conclusion of the conference, over 2,000 attendees had made a commitment to purchase the first round in production.

Customer purchase commitments gave them access to more funding and partnerships with larger organizations, such as Best Buy.

Getting orders seemed easy for this new company. But fulfilling them was not. They’ve faced a series of manufacturing and design disasters but by using the Effectual principles of “affordable loss” and “crazy quilt”, the damage inflicted has not been fatal. In fact, James Park told Forbes magazine, that struggles “have almost put the company out of business seven times” over seven years. While FitBit hasn’t been particularly adept at turning these setbacks into advantages, they have managed to prevent them from being ruinous.

As consumers change in their usage of wearables and technology shifts, the space becomes more crowded. But James Park remains adamant that he doesn’t focus on competitors and instead keeps his sights on what customers want. He’s played the startup game long enough to know that the winner isn’t the player who comes up with the best idea, but the one that continues to execute well.

Less than a decade ago, “wearables” weren’t even a market. Entrepreneurs like James and Eric made it one.

There’s 9 shopping days until Christmas. That countdown used to be prominently placed on the front page of local newspapers, encouraging shoppers to scurry to their local retailers.

Today, people are also paying attention to a different number – the last holiday shipping date. With more and more purchases being done online, customers are very aware of the limited time remaining to mail, ship, or post their purchases. No one wants to find the perfect Christmas gift only to have it arrive at the recipient’s doorstep on the 26th.

Online retailing giant Amazon knows the importance of getting those Christmas gifts there on time. In December 2013, the perfect storm of a last minute consumer shopping rush collided with a snowstorm that had UPS playing Santa days after December 25th came and went. Negative customer backlash to both UPS and Amazon did not go unheard.

Since then, Amazon has aggressively pursued improvements to its delivery infrastructure. One of their recent initiatives is a great example of how Amazon uses Effectual thinking to develop transformative innovations.

The Problem: The Last Mile is the Costliest

The shipping industry has a massive global infrastructure that has seen tremendous innovations in management and technology. As Amazon’s online sales and merchants have developed a global footprint, Amazon has developed partnerships with the major customer shipping outlets, including FedEx, UPS, the US Postal Service, DHL, etc. Able to take advantage of global scale opportunities, they have built warehouses in strategic locations worldwide to drive down costs while shortening their merchandise delivery times.

Yet as they’ve wrung efficiencies out of the origination of their shipping points, the most expensive and inefficient leg of the shipping process is the last mile. Getting the package to the customer doorstep is the costliest step. Why? To get the packages to houses, drivers must often criss-cross towns and suburbs. Sometimes they have to park far away from the home or search for the right house number or appropriate parking. If the package requires a signature they have to wait for a customer to sign or put it back on the truck for redelivery.

Rather than solve this problem on their own, Amazon collaborated with others to develop an innovative approach to reducing these last mile costs.

The Solution: Mobile Mailboxes

One solution that Amazon has enacted is the use of centrally located drop-off boxes in urban areas. When a driver delivers a group of packages to one location, it minimizes time spent driving. And standard box locations allow for optimized routing.

Amazon saw there were a lot of benefits to this, but they felt that there was room for further innovation. They identified a company who shared this last mile pain with them. The company they selected was DHL in Germany.As conversations evolved, they identified a secure dropbox that many of their customers already owned but that was going unused – a car trunk.

The conversation expanded to include car manufacturer Audi. Now all three companies were engaged together in solving this problem. The solution they developed is currently being piloted in cities in Germany. It works as follows:

Audi developed a lock for trunks that is distinct from the overall car lock.

Owners of Audis can download an app that “enables” their smart cars to participate in this pilot and signals their consent to have their packages delivered to their car trunk.

Amazon packages ready for shipment are picked up by DHL.

DHL drivers use the app to identify where the package recipient has parked their car for the day.

DHL drivers are given a one-time use code that enables them to unlock the trunk of the car. They place the package in the trunk and close it.

The driver gets a notification on their phone that the package has been delivered and their car is locked.

Both Amazon and DHL are betting that the majority of the users are commuting into the city and parking their cars in lots and garages. Rather than traversing the suburbs for delivery, it concentrates the drivers in the urban ring.

The Method: Effectual Co-Creation

When Dr. Saras Sarasvathy of the University of Virginia’s Darden School of Business identified the principles of Effectuation, the process of innovation used by expert entrepreneurs, she highlighted five key principles. They are all evident in this example.

1.The Pilot in the Plane Principle – the future is created, not predicted.

While a partnership between Amazon and DHL is not unusual, the addition of Audi and the reimagination of how even parked cars can be used as part of the delivery process show that Amazon believes that they can create new markets and transform industries.

2.The Bird in Hand Principle – start with what you already have access to.

As these three companies joined forces, they each contributed their existing resources to the innovation process. Amazon added their logistical optimization capabilities. DHL added their trucks and manpower. And Audi recognized that they had a “slack” resource to contribute – the Audis their customers were driving and parking.

3.Affordable Loss – invest only what you can afford to lose.

Despite the fact that they are global in scope, these three companies decided on a limited pilot to test this concept. Beginning with Munich, the companies will gauge efficiencies and customer response before committing to rolling out the service further. Each organization was willing to invest in small changes, such as creating apps, training drivers, educating customers in a limited market, etc. They recognize that just because they are large successful organizations, doing truly innovative projects means successes and failures and limiting the scope initially can be a valuable learning experience.

4.Crazy Quilt – co-create with additional committed stakeholders.

This principle is at the core of this project. Rather than viewing each other as competitors, DHL and Amazon are working collaboratively to solve this last mile challenge. And in order for Audi to participate in this project with them, Audi had to commit to making changes to their vehicles that enabled the trunk locking mechanism to be distinct from the overall car lock and compatible with smart phone technology. Ensuring that each party has skin in the game increases the involvement and commitment to success of every stakeholder.

5.Lemonade Principle – turn obstacles into advantages.

Just by participating in this collaboration, these three companies are acknowledging that they have a major obstacle – the high cost and inefficiencies of last mile deliveries. By working together to solve this, they could possibly convert this drawback into a competitive advantage.

Mastering the Last Mile

Corporate collaborations aren’t easy. But they are essential for true game changing innovation. The partnership between Amazon, DHL, and Audi to pilot this car trunk delivery solution likely took a lot of discussion, negotiations, and some strong corporate advocates in each organization.

But if all works as they anticipate, Amazon will get packages to customers more quickly, DHL will reduce its delivery costs, and Audi will deepen its value and relationship with its customers. All of which would make for a Happy Holiday season for these companies and their customers combined.

Tom was having a bad day. He was preparing for a presentation when he ran out of printer ink. His presentation was the next morning. He had to have those copies ready. He jumped in his car and headed out in search of ink. Driving around, he was unable to find a place open that had the ink he needed.

Tom was stressed out. He was between jobs. This was his opportunity to sell himself to a new team. If he didn’t have this presentation in hand in hours, he would be out of luck.

Or would he?

The Tom in this story is Tom Stemberg. It was Fourth of July weekend, 1985. He had been an executive at a supermarket chain and had an idea for a new type of food retailer. He had his business plan sketched out and was typing it up in preparation for a meeting with potential investors the following day. But he ran out of typewriter ribbon. He went in search of replacements, but all of the small office supply retailers he visited were closed for the holiday weekend.

Tom was frustrated by the experience, but it got him thinking. Instead of following through on his pitch for funding a new grocery, he started talking about creating an office supply superstore. The result was Staples.

Was Tom’s experience of not finding what he needed a case of bad luck? Good luck? Or was Staples destined to happen all along?

Luck v. Serendipity

The field of entrepreneurship used to place a lot of emphasis on luck and intuition. Come up with a new idea? You were in the right place at the right time. Make new markets happen? It was in your genes. Achieve entrepreneurial success? The stars aligned and you were destined for greatness.

But the research of Dr. Saras Sarasvathy of UVA Darden’s School of Business upended this traditional view. Effectuation shows that there is a process that successful entrepreneurs use to create new ventures. They don’t have a superior knowledge of the future. It’s not just a matter of fate. Instead, they work with what they have and what they experience in the present to create the future.

Luck is something that is brought about by chance, not by action. Serendipity is finding value in something unexpected. While similar, they differ in action. Luck removes the agent from acting. Instead, they are acted upon. With a serendipitous event, the impetus is on the agent to convert the unexpected experience they are having into something valuable.

Serendipity aligns with the Effectual Lemonade Principle. This says that expert entrepreneurs are open to the unexpected. They do not fear it, avoid it, or seek to eliminate it. Instead, they embrace it and beyond this, can be seen to create opportunities for the unexpected to thrive.

Embracing Serendipity

Nicholas Dew, Associate Professor at the Naval Postgraduate School, has written on the difference between luck and serendipity. He has identified three conditions that improve the likelihood that an entrepreneur will be able to take advantage of an unexpected event.

1 . Prior Knowledge. It pays to have a deep understanding of something. The specific field can be anything – as long as the individual develops competence. What’s important is the knowledge and confidence that emerges from this expertise.

2. Contingency. This is defined as an awareness of things that are occurring around the entrepreneur; happenings in the broader environment. In contrast to the previous point, this requires a broad view rather than a narrow but deep understanding. This perspective allows the entrepreneur to identify opportunities to translate their prior knowledge into creating new and innovative markets.

3. Searching. An openness to experimenting and trying new ideas and new combinations, this requires that the entrepreneur be on the lookout for things that appear to be unusual, unique, or innovative. This does not imply that the entrepreneur will “discover” or “find” a new market. But that they are open to trying new things in new ways as they work to create a new market.

Serendipity and Staples

How does our original Staples example show signs of serendipity rather than just luck?

1.Prior knowledge. Stemberg had a deep knowledge of how to run a major grocery store. He was a Harvard MBA with a strong business skill set and an understanding of how to build and market a retail store.

2.Contingency. Although Stemberg had a very specific need and was focused on finishing his business plan for groceries, he didn’t have such tunnel vision that he overlooked the opportunity before him. He was open to applying his prior knowledge in one area to a different field. He was able to identify the commonalities and differences from his experiences in food retail and translate that to an opportunity in office supplies.

3.Searching. When he couldn’t find the office supplies he needed in a pinch, he didn’t stop with defining this as just bad luck. He saw that it didn’t have to be this way - that there might be a solution that could solve more than just his situation. And that he could be the one to create this solution.

Being a successful entrepreneur isn’t a personality trait. And it’s not just good luck. It comes from following an Effectual process rooted in the notion that the future is not predetermined, but instead created by the collective actions of individuals.

With these three factors - prior knowledge, contingency, and searching - serving as inputs to understanding, entrepreneurs can be well positioned to change their luck into serendipity and their future into, well, whatever it is they want to create.

_______________________________________________________

Sources: What Effectuation is Not: Further Development of an Alternative to Rational Choice, Wiltbank & Sarasvathy (2010); and Serendipity in Entrepreneurship, Dew (2009).

When successful entrepreneurs look back at how they began, they can gloss over the difficulties of starting up. Often, the stories they tell about how they grew their ventures neglect the early stage of what it really took to validate the initial idea in market.

Dr. Sarasvathy of the University of Virginia’s Darden School of Business noticed this. It’s what led her to conduct research with some of the most successful entrepreneurs in the United States. And this resulted in her discovery of Effectuation. Effectuation is the process used by successful entrepreneurs to start ventures.

This week, I came across this story of a local entrepreneur in Charlottesville, VA. Kip McCharen has launched a business making alcohol bitters (http://tinyurl.com/zfgohje). And all of the principles of Effectuation are evident in his story.

Bird in Hand Principle: Start with who you are, what you know, and whom you know.

Making bitters is something Kip enjoys. He was experimenting with some when he ran into a challenge. He could only buy certain ingredients in bulk. Rather than let them go to waste, he made a large batch, kept what he wanted for himself, and gave the rest to friends.

His friends enjoyed the bitters – and asked for more. From this, the idea of crafting bitters for sale was born.

Affordable Loss Principle: Only risk what you can afford to lose.

While Kip saw an opportunity to make and sell his bitters, he wasn’t ready to give up his existing job yet. So he decided to test the waters by selling at the local farmer’s market on Saturday mornings. He called and asked them if they would let him have a presence there some weekend and was surprised that there was an immediate opportunity. He took it.

Wanting to expand awareness for his product and put it in front of more potential customers, Kip brokered arrangements with local restaurants to feature his bitters. The restaurants were willing to do so as it gave them something new to offer their patrons. This has helped Kip to grow beyond customers that he alone can reach.

Lemonade Principle: Turn challenges into opportunities.

This is most evident in Kip’s initial approach to having to order large quantities of ingredients for his own batch. He didn’t throw away the excess. He made a large batch and gifted the product to friends and family.

Pilot in the Plane Principle: The future is created, not predicted.

The market for bitters is relatively untapped. Even the regulators aren’t quite sure how to address it yet. Rules around composition and distribution are evolving. This isn’t stopping Kip from pursuing his venture. He is working with things he can control and maintaining the ability to adapt and be flexible to meet the needs of this changing environment.

Kip doesn't know where this venture will end up yet. The regulations around it are still being formed. There aren’t many competitors. Craft bitters are a relatively new concept. But that’s not stopping Kip. Instead, he’s viewing this as an opportunity.

No one can say what this venture might look like in a few years, but for now, Kip is applying Effectuation to grow it. And we wish him sweet success for his bitter business.

Monster.com, an internet job hunting website, was new to the scene in 1999 when it placed a big bet on a Super Bowl Commercial. It featured a series of children citing their aspirations to file useless paperwork, create meaningless documents, and brown-nose their way up the corporate food chain. “When I grow up I want to be in Middle Management”, said one glum looking child, absent of any zest for life. It closed with the screen going dark and Monster asking people what they really wanted to be when they grew up.

The ad was a huge success and one of the most memorable Super Bowl ads of all time. Why? Because the sentiment resonated with millions of Americans. Being Middle Management is hard. And rarely is the position aspirational. Sandwiched between power and responsibility, it can leave individuals feeling disenfranchised and just plain stuck. Many times, those in this corporate no man’s land can look fondly on entrepreneurs as working in a fantasy world where one has 100% control.

It turns out that both views are inaccurate. Middle Managers do have ways to exercise control. And entrepreneurs do not operate in environments where they have 100% control. The reality is that the most successful entrepreneurs are able to create control through the framework of Effectuation. Middle Managers can learn from the tools used by entrepreneurs to derive control and apply these methods in their own company environments.

How Entrepreneurs Get Control

Control means having the power to influence or shape behaviors and outcomes. Effectuation is the process by which entrepreneurs gain control in the face of uncertainty. Using the 5 principles outlined by Dr. Saras Sarasvathy of UVA’s Darden School of Business, entrepreneurs shape the outcomes of their ventures. This allows them to innovate and bring to life things that could not have been predicted. The 5 principles are:

Pilot in the Plane: The mindset that things are created, not predestined

Bird in Hand: The ability to identify and build on who they are, what they have, what they know, and who they know

Affordable Loss: Setting a downside limit for experimentation to enable recovery from the unanticipated

Lemonade: Reacting to surprises as opportunities to be leveraged, not mistakes to be mitigated

Underlying all 5 of the principles is the idea of commitments. Commitments require that parties are co-invested in outcomes. They mutually agree to pursue a shared vision. Even if motivations and means differ, at the point of time in which they come together, they share a unity of purpose and are both vested in the success and / or failure of the joint pursuit.

Entrepreneurs get control by first letting go of their idea. It starts with conversations. Successful entrepreneurs don’t keep their ideas to themselves. They share them with others. It’s not that they trumpet them proudly or broadcast them for publicity’s sake. Instead, they offer them in conversation as opportunities for others to opt in and participate in building on their idea.

The more people who are exposed to the entrepreneur’s concept, the more likely the entrepreneur is to find others who connect with their idea and offer to join efforts with him or her in a meaningful way.

Once a link is established between entrepreneur and potential stakeholder, a discussion ensues in which both parties seek to understand more about each other, the outcomes being pursued, and the resources they could bring to bear.

Eventually, if both parties can envision a mutually beneficial outcome, the next step is for each party to make commitments to the pursuit of this vision. These commitments could be an investment of time, money, social capital, or any additional resource imagined. Balancing the investment so that both parties feel a significant stake in the outcome is optimal. This does not mean that the investments should be equal. The venture benefits from each party bringing their unique contributions to the table. But while resource inequality is expected, relative equality in gains and losses is desired.

The entrepreneur replicates this exercise with numerous stakeholders of various forms throughout venture creation. With the addition of each stakeholder, the entrepreneur cedes control. But they gain control over the process and likelihood of successfully creating a new market.

What can Middle Managers Learn from this?

There are several steps Middle Managers can borrow from the entrepreneur’s playbook:

1.Building partnerships is a way to exert control.

If you have an innovative idea you want to grow but the corporate structure you’re in limits your authority, seek to build alliances. Like an entrepreneur, start talking about your ideas with others. If your environment requires it, be political about how you phrase things and who you approach, but don’t completely rule out your ability to move things forward by creating a team of champions.

2.Alignment of goals increases control.

If your team or division is responsible for certain outcomes but not for the entire process, look for ways to establish mutual responsibility along your entire delivery chain. Engage stakeholders in the process to create linkages that build on opportunities to support each other in achieving desired shared outcomes.

3.The future doesn’t have to be just as you imagined it.

This might be the most important lesson entrepreneurs can teach. Even Steve Jobs, acclaimed by many as a great visionary, thought the future was going to be in “make your own computer kits”. It was only because hobby stores wouldn’t buy them and instead encouraged him to bring his computers in already assembled that he began down the path of the Apple we know today.

When entering into conversations with stakeholders, whether internal or external to your organization, don’t position things as “yes or no”. Instead, be open to the other participant adding their input to your vision. If it’s something you agree with, build on it. And then, make sure that they contribute something of value towards achieving what is now a shared goal.

Empowering Middle Management

Middle Management might not be glamorous, but it doesn’t have to be glum. There are ways to gain control of organizational outcomes and exercise management creativity, even if company structures are not designed to explicitly offer this authority. Use relationships, experience, technical knowledge, and influence to shape your ideas and outcomes in ways that benefit both you and your organization. Knowing that you can exert control in ways other than top down will help you see ways to lead through problems and uncertainty.

In business, having control is viewed as a sign of strength. We seldom boast of giving it away. But successful entrepreneurs frequently do let go of control – and for good reason. It’s how innovative ventures grow.

These are three excuses I’ve heard recently from corporate managers who struggled with unsuccessful innovation efforts. In each case, they identified the end result as a product failure. They talked about the loss incurred and how their teams were sent scrambling for a better idea.

Companies generally respond to these types of failures in one of three ways.

1. Restructure the team. They put a new innovation manager in place. Or they pull the innovation team out from the business and put it into an incubator. Or they change the titles of the team members and rebrand the squad. In the end, it often amounts to a cosmetic change and rarely gets to the root of what caused the innovation failure and how to turn things around.

2. Revisit the pipeline. Most companies are not lacking for ideas. When one doesn’t work, they dig up the list from past brainstorming sessions and consultant plans. They put the same process in place to bring the next idea to market.

3. Re-research the market. Seeking better data on customers, the economy, and competitors is often an easy fallback for companies when new products and services don’t behave as desired. The infrastructure is already there in most organizations. And every employee wants to be able to answer the “what went wrong” question with stats and charts.

But maybe it wasn’t the idea that failed. Maybe it was the process.

Effectuation shows us that successful entrepreneurs are able to turn all of these excuses into market successes. Nobody intentionally tries to exhaust all of their start up funds, launch something that doesn’t resonate, or bring a less than ready product to market. But the act of creating leads to unknowable outcomes.

Expert entrepreneursuse them to their advantage. Effectuation refers to this as the Lemonade Principle. They turn lemons into lemonade.

Here is how successful entrepreneurs react in similar situations.

1. “We ran out of money before it got traction.”

Precommitments and partnerships are a way around this. Have customers pay prior to development for investment heavy products. It ensures a buyer for what you’re building.

Partnerships also help to spread the risk and expand the network of possible payers for your innovation. Resource constraints also force creativity. In all likelihood if you are having trouble funding the venture, others are as well. This opens opportunities for collaboration.

2. “Customers liked it in tests, but we got mediocre sales in market.”

View your customers as partners in your innovation venture. One way to do this is to employ some form of pre sales. Another way is to actually co-create with them. How can you take advantage of the skin in the game that early adopters are willing to commit? Deepen your relationship with them and make them part of your sales force.

Also, take a wide view of your innovation efforts. Look not just for what you expect to happen, but what is actually happening. Is it the product / service that customers are reacting to? Or is it your distribution channel? Your marketing? Your packaging? Your pricing? Are they giving you an indication of what they do want that you’re not noticing? Engage your customers in figuring this out.

Remember the last day of school? You couldn’t wait to break free. No more homework, teacher oversight, busy work assignments. Just the freedom to be creative. You explored. You invented.

Now think about your current work environment. Feeling the same restrictions? Boxed in? Beaten down? Micromanaged? Confined to your desk, or worse yet, a cube?

Insights Ignited worked with a multinational that had high employee fatigue. They had lots of ideas in their pipeline, yet were still losing market share. Their predictive models failed to indicate a clear winner among all of their possible options. Employees saw the writing on the wall. If they didn’t come up with some breakthrough products, another round of layoffs was inevitable. This elevated the stress level of their associates even more.

Their first solution was to bring in an entrepreneur as an inspirational speaker. That didn’t work. At the end of the “motivational” speech by the successful entrepreneur, employees had one of two reactions:

“Everything the entrepreneur said was true. But that will never work here”. Or.....

“I’m so inspired. I have an idea of my own. I want to quit this job and work on my own idea”.

Either way, the company wasn’t the beneficiary. All they got was an increasing level of frustration as people sought external outlets for their creativity.

Then they tried Effectuation.

Effectuation empowers employees.

Effectuation puts a limit on the downside. Managers explicitly set an acceptable level of risk. But within those parameters, employees are free to innovate. Effectuation provides a framework for communicating both the risks and the process of innovating that allows managers to be comfortable with letting their employees have creative freedom.

How?

In this case, the company cited 4 components of Effectuation that they felt most contributed to increased employee engagement.

A common vocabulary - The language of Effectuation (e.g. Bird in Hand, Lemonade, Crazy Quilt, etc.) is memorable and easy to understand. There’s not a lot of technical jargon.

A shared understanding of boundaries - Effectuation requires explicit acknowledgment of risks. This allows managers to feel confident that employees understand the non-negotiables, while leaving them free to pursue innovative outcomes.

Conversion of perceived negatives into positives - Setbacks are a part of trying new things. Effectuation provides a way to transform unexpected events from a project risk to a potential benefit.

Innovation accountability - When a group pivots, it can be difficult to track progress. Effectuation provides metrics that hold innovation teams accountable to process as well as outcomes.

Using Effectuation, this company was able to develop and launch a product that opened a new segment for them. And they did so in a non-traditional way, using a new process and marketing approach as well. Employee satisfaction improved and they cited feeling more empowered to do their jobs.

How about you? Feeling frustrated at work? Empower yourself – and your team – through Effectuation.

Most people have a love / hate relationship with email. While convenient it can also quickly become overwhelming. It’s been a hallmark of the digital age. And it’s also ripe for innovation. Now there’s Slack. Slack is a communication tool that’s aiming to address the annoyances of email while maintaining its benefits. And it has over 2.5 million people on board as active users.

Stewart Butterfield, the CEO of Slack, saw the time was right for upending traditional email. An MBA, he researched the industry, talked with potential users, got their feedback, and built a business plan to revolutionize the way email is used. After convincing a wealthy investor to fund his new platform, he rolled it out to great fanfare with a huge marketing budget and nationwide launch.

Or did he? Here’s the real creation story for Slack….

Stewart Butterfield, a college graduate with a degree in Philosophy, was very interested in the study of the mind and how people think. He gathered some friends of his and set out to build a new online-video game called “Game Neverending”, a massive multiplayer roleplaying game. Along the way, they built a photo sharing platform which they used among themselves. After a few years, it was clear that the video game was going nowhere, but Stewart was able to extract the photo sharing platform and build it into Flickr.

His interest in online gaming persisted and he gathered a group together a few years later to collaborate on the production of a new game idea called “Glitch”. To facilitate communications between the team members and organize the project, they built a custom communication tool. Glitch also failed. But that communication tool that the team was using was again extracted. It was the origins for Slack.

In “The Slack Generation”, an article that appeared in the May 14th edition of The Economist (http://goo.gl/e2HjcP), they claim that Mr. Butterfield is “wonderfully unlucky”. I claim that he is Effectual.

Mr. Butterfield experienced two big failures in his quest to create new online games. But each time, he was able to turn the failure into something positive. This is part of the effectual mindset that converts failures into opportunities (the Lemonade Principle of Effectuation). He took remnants of his failed projects and turned them into valuable assets. In fact, he made $35 million on his first failure when Yahoo purchased Flickr in 2005.

The future of Slack remains to be seen. There’s a lot of speculation as to whether it will be acquired or go public. But my guess is that Mr. Butterfield isn’t one of those who are speculating. Instead, he’s effectuating his path to innovation success.